Survey-based index pegs sector’s expansion at 3-month low; job shedding apace, confidence fades

The Purchasing Managers’ Index (PMI) for India’s manufacturing touched 56.3 in November, signaling that even as an improvement in wider industrial activity continued, the sector’s expansion as well as the pace of of new orders slowed down while employment declined further as business optimism faded during the month.

After hitting 58.9 in October, the highest in over a decade, November’s manufacturing PMI marked a three-month low, IHS Markit, which compiles the index, said on Tuesday.

“Growth in the Indian manufacturing sector lost momentum in November, but the latest PMI reading was still consistent with a sharp rate of expansion,” the firm said in a release. “There were slower increases in factory orders, exports, buying levels and output. Meanwhile, COVID-19 restrictions caused a further drop in payroll numbers,” it added.

Though aggregate new orders rose at the slowest pace in three months, their growth was “stronger than any seen for eight years prior to September”, IHS Markit noted and said export orders had also picked up last month, as per the purchasing managers of 400 manufacturers it had surveyed.

“Employment… decreased again as companies observed social distancing guidelines. The rate of job shedding was solid and little-changed from October,” the firm pointed out.

‘Safety stocks’

“For now, firms are projecting sustained demand growth in the near-term and responded to this by lifting input buying to increase their safety stocks,” said Pollyanna De Lima, Economics associate director at IHS Markit.

Interestingly, firms increased their purchases of inputs even as inventories of finished goods dwindled. Also, input costs saw a sharp increase “with the overall rate of inflation the joint-strongest in two years”, with firms reporting higher prices for raw materials such as chemicals, metals, plastics and textiles, it said.

While India’s manufacturing sector remained on the recovery track, Ms. De Lima stressed that a spike in COVID-19 cases and the possibility of associated restrictions could undermine the recovery and constituted a key uncertainty that was weighing down business confidence.

“Business optimism faded slightly in November. Output growth is still predicted for the year ahead, but concerns about public policies, rupee depreciation and the COVID-19 pandemic dampened overall confidence,” the business intelligence firm said.

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